How to Create a More Efficient Accounts Payable Workflow

How to Create a More Efficient Accounts Payable Workflow

While accounts receivable, or the money that flows into a business, often gets a lot of attention from business owners and managers, accounts payable can be the neglected stepsibling, often given barely any thought or consideration. It can be easy to understand why a business might not want to focus too much on accounts payable (AP). After all, AP handles the money that flows away from a business. It’s responsible for the majority of the payments a company makes, except payroll.

But the strength of your company’s accounts payable department directly connects to the strength of your company overall. Finding ways to improve the accounts payable process, to minimize inefficiencies and to ensure that vendors and other payees receive payment on time or even early, can help your business save money and time in the long run.

Why Your Accounts Payable Workflow Matters

It’s equally as essential to keep a tight handle on the money that flows out of your business as it is on the money that comes in. You don’t want to pay for items or services your business never received or used, nor do you want to pay the wrong companies. Having a streamlined accounts payable workflow will help you avoid the following scenarios.

  • Paying vendors multiple times for the same products/services: Without an efficient workflow in place, your accounts payable team might pay the same invoice more than once. Even if the payee credits your account for the excess payment amount, duplicate payments can disrupt your company’s cash flow.
  • Paying fraudulent or inaccurate invoices: Is that invoice from a legitimate vendor? Without a system in place to verify invoices or to recognize vendors, it can be challenging to ensure only genuine invoices get paid.
  • Missing payments: A misplaced invoice can mean your company overlooks a payment. Without an effective workflow, it can be challenging to keep track of all invoices received. Additionally, not having a designated email or P.O. box for invoice acceptance can mean some invoices never make their way to the AP department.
  • Missing out on early payment discounts: Many vendors are willing to offer an early payment discount to encourage companies to pay invoices quickly. Having an efficient workflow in place can mean that your company can take advantage of reduced prices and discounts offered by payees.
  • Late payment penalties: Along with not missing payments, you don’t want to pay late, as many vendors will charge late fees. A system that ensures your invoices get paid on time will help you avoid the added cost of late payment penalties.

Improving Your Accounts Payable Workflow

Your accounts payable workflow involves more than invoices in, payments out. Improving the accounts payable process steps can mean your business pays what it owes and can help improve your overall cash flow.

1. Ensure Simple Sharing

One of the first steps toward improving your accounts payable workflow is to make sure everyone on your team is on the same page when it comes to accepting invoices, creating purchase orders and working with the appropriate vendors. Collaboration should extend beyond the accounts payable team. You want to make sure anyone who works with outside vendors or payees understands the process, and that the information gets shared with all the appropriate parties.

Collaboration between two departments, in particular, is critical for a streamlined AP workflow: procurement and accounts payable. Procurement is the department that’s traditionally responsible for ordering supplies and services, while AP is typically responsible for issuing payments. At many companies, the two teams often work separately, even though the work of one directly affects the work of the other.

There are several ways to make sure procurement, AP and other related departments can all collaborate and share information easily. One option is to develop standards for purchases and spending. Team members from across departments have access to the standards and will know what to do when making a purchase or working with a vendor.

Another way to increase collaboration and sharing is to put together a list of preferred vendors. Making that list available across departments will help reduce the likelihood of a rogue or unauthorized purchase, and will cut back on the administrative effort of having to onboard new vendors or payees regularly.

2. Digitize Your Data

Paper invoices are easy to lose, damage or destroy. When vendors submit physical invoices, someone from your AP team needs to take the time to transfer them into your payment system, process the payment and then record it. A member of your team also needs to verify and review each paper invoice, comparing it to the products ordered or services rendered.

Digitized data minimizes the risk of transcription errors and helps you avoid paying the wrong amounts to vendors. Digitizing your data also reduces the number of person-hours spent processing and accepting invoices. There are multiple ways you can go about digitizing your data.

One option is to accept and encourage suppliers, vendors and other payees to send in electronic invoices. Vendors can email PDF versions of their invoices to a monitored email address. From there, the software can scan the information the invoice, such as the line item detail and header data, to enter it into the system.

You do not have to go fully digital to reap the benefits of minimizing paper. If you have vendors who prefer to send in paper invoices, you can still digitize them. With a lockbox system, vendors can send their paper invoices to a designated P.O. box. From there, the invoices get scanned and analyzed for any errors before being passed on to your team. Another option is to batch scan paper invoices, so that the information becomes available electronically in a format that AP software can interpret.

In addition to digitizing the process of collecting and reviewing invoices from vendors, you can modernize the payment process. Rather than having to issue checks, which need signatures and approvals, your business can pay vendors with ACH or direct deposit. Since the funds from ACH or direct deposit end up in the bank accounts of payees almost immediately, there is no need to worry that a check has gotten lost in the mail or that a payee has forgotten to deposit it.

3. Keep Your Accounts Payable Information Centralized

Many hands make light work, but in some cases, they also create confusion. Centralizing accounts payable reduces the number of people who might come into contact with an invoice, as well as the likelihood that an invoice will get paid multiple times — or not at all. Having a single place for invoice submission, whether it’s an email address or lockbox, and setting up a system to track and record any activity on an invoice will help eliminate missed or multiple payments.

A centralized AP system can be particularly valuable for larger companies, which might work with vendors across multiple departments. It can also be useful for small companies, which only have one or two individuals handling accounts payable. Since a centralized system typically includes digital invoice collection and submission and automated payment reminders, it reduces the amount of effort your team has to exert to input invoice data and to make sure payees receive timely payments.

Another benefit of centralizing AP information is that it encourages everyone to get on the same page. If a member of the procurement team has a question about an invoice or wants to confirm payment on a purchase, they can log into the centralized system, look up the invoice and find out everything they need to know. Providing internal team members with easy access to invoices and other AP information will help streamline the process, reduce questions and confusion and eliminate duplicates.

4. Instill Internal Controls

Since accounts payable is the department that manages money leaving a company, it tends to be the department that is most frequently a target of fraud. On average, companies lose about 5% of revenue in a year because of fraud. One of the most common examples of fraud is asset misappropriation, which includes billing schemes, check tampering and falsifying expenses.

Vendors can commit fraud, as can your employees. Putting internal controls in place can help dramatically reduce the risk of fraud. One example of internal control is a process to verify that new vendors are who they claim to be. Internal controls can also help you verify that invoices are from an approved vendor, and can detect and flag any invoices that seem suspicious. Among the criteria you can use to verify vendors and invoices are as follows.

Approval: Has a member of your team entered the vendor into the system and approved them? Is it from your list of preferred vendors?
Address: Does the vendor’s invoice list a legitimate address, or does it seem to be a residence? Another flag to screen for is whether the vendor’s address matches or is similar to an employee’s address.
Inaccurate information: Do the products or services the vendor is charging you for match up to the products or services received? Have they submitted an itemized invoice that breaks down the cost of each product or service?
Having internal controls can also cut down on reimbursement and payment fraud. For example, your business can implement a system to verify that an employee used the expenses they are claiming for business, rather than personal, reasons.

5. Invest in AP Automation

An accounts payable process flowchart looks something like this:

  • Vendors submit invoices.
  • Invoices get put into your company’s system.
  • Invoices receive approval, rejection or get sent back to the vendor for clarification.
  • The AP department authorizes payment of approved invoices.

In the past, a human would need to supervise or play a prominent role in each part of the process. Someone would need to receive the invoices, input the data, manually approve, reject or follow up on them and finally, issue the payments. AP automation software streamlines each step. No longer will a team member need to take time out of their busy day for menial, time-consuming tasks such as data entry and review.

Instead, with AP software, a computer program takes care of things for you. Automation software reads the invoices, identifies the relevant information and tells you what you need to take care of. If something seems strange about an invoice, it will flag it for review or send it back to the vendor for correction. AP software can also recognize invoices you have already paid, reducing the risk of duplicate payments.

Contact Vanguard Systems to Learn More About Streamlining Your Accounts Payable Workflow

Contact Vanguard Systems to Learn More About Streamlining Your Accounts Payable Workflow
Accounts payable automation software saves your business time and money and allows your employees to focus more of their time and energy on relevant tasks. At Vanguard Systems, our focus is on eliminating inefficient processes from the business world. To find out more about our AP automation software and to see how it can help improve your company’s process, contact us today to schedule a free demo.


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